1. What is a managed futures account?

some frequently asked questions about managed futures accounts, for more information on getting a managed Futures account in Indonesia please email me – psymon@gmx.com

1. What is a managed futures account?
2. What types of investors utilize managed futures accounts?
3. What has been responsible for the growth in managed futures?
4. How are profitability, volatility, and risk affected whenmanaged futures are included in an investment portfolio?
5. Why can investment portfolio performance be improved byincluding managed futures?
6. Is a managed futures account appropriate as a short-terminvestment?
7. Does having a managed futures account lessen the risk offutures trading?
8. How does the performance of managed futures accounts comparewith that of self-directed accounts?
9. Are there other reasons why managed futures accounts aregenerally more profitable?
10. Don’t trading advisors differ from one another in theirinvestment results?
11. How important is an advisor’s past trading performance?
12. What should be considered in examining an advisor’s trackrecord?
13. Which futures markets would I be trading in with a managedaccount?
14. How do trading advisors differ in their investment approaches?
15. Where will my money be held when I establish a managedaccount?
16. Who regulates Commodity Trading Advisors?
17. How do I monitor the status of my account?
18. What mistakes do investors somtimes make reqarding managedfutures?
19. What are the costs, and how do trading advisors get paid?
20. Is there a minimum investment to establish an account?
21. Are there any restrictions in withdrawing funds from myaccount?
22. What is a Commodity Trading Advisor (CTA)?
23. How much money should I invest in managed futures and howdo I open an account?
24. Why would I need managed futures if I were already tradingfutures?
25. Can I invest a portion of my retirement porfolio in managedfutures?
26. Are managed futures riskier than stocks?
27. Are there any tax benefits to investing in managed futures?

A professionally managed futures Account is like any other brokerage account

established to trade futures except that you give permission to make all trading

decisions on your behalf through a revocable power of attorney to a Business Consultant (BC). In this sense, the advisor is the account “manager.”

The advisor’s compensation is normally a set value per trade per lot. top

2. What types of investors utilize managed futures accounts?

It has traditionally been individual investors seeking the profit opportunities

of futures trading but without the responsibility and demands of day-to-day

account management. Recently, however, growing numbers of corporate and institutional investors have been allocating some portion of their total portfolio assets

to specially designed and professionally managed futures trading programs.

The total amount of capital in managed futures programs is estimated to exceed

$50 billion. top

3. What has been responsible for the growth in managed

futures?

A variety of things. As traditional investment markets have become increasingly

volatile and vulnerable to often-unexpected events, institutional money managers

and other sophisticated investors have sought to more effectively manage overall

portfolio risk through diversification.

A number of studies indicate that a portfolio that includes managed futures

can yield appreciably higher and more stable return over time than a portfolio

that includes only stocks and bonds. The same evidence indicates this can

be achieved without added risk, or even reduced risk. One such study conducted by the Chicago Mercantile Exchange, “Portfolios with as much as 20% of assets in managed futures yielded up to 50% more than a portfolio of stocks and bonds alone.”

Still another factor in the growth of managed futures has been the tremendous

broadening of futures markets to encompass stock indexes, debt instruments,

currencies, and options as well as conventional commodities. This has created

whole new categories of profit opportunities. The increasingly global nature

of today’s futures markets also has expanded the scope of investment

opportunities.

Finally, from the standpoint of an individual investor, managed futures

accounts have proven to be considerably more profitable on the average than

accounts that individuals trade on their own. top

4. How are profitability, volatility, and risk affected

when managed futures are included in an investment portfolio?

Harvard Business School Professor John E. Lintner found that including managed

futures in a portfolio “reduces volatility while enhancing return.”

And those portfolios “have substantially less risk at every possible

level of return than portfolios of stocks, or stocks and bonds.” Research

studies demonstrate that managed futures have a low or negative correlation

to the stock and bond markets. Additionally, the futures markets provide profit

opportunities on a highly leveraged basis in either bull or bear markets in

the financial and commodity markets.

For the period of January 1, 1980, to December 31, 1998, data show that

managed futures investments (measured by the Barclay CTA Index) had a compound

annual return of about 15.8%. That compares very favorably with the 17.7%

return that common stocks had during the same period, one of the strongest

stock markets in U.S. history. Further, it exceeded the 11.8% return on bonds.

Moreover, during a similar period (January 1, 1980, to December 31, 1997),

analysis showed that a portfolio that comprised some managed futures had similar

profitability with far less risk. top

5. Why can investment portfolio performance be improved

by including managed futures?

There are several reasons, but high on the list is that managed futures

may perform best when other investments are performing relatively poorly.

On the occasions of the S&P 500®’s worst two declines during

the past decade, managed futures recorded net profits of 9.7% and 18.6%. A

study by University Of Massachusetts finance professor Thomas Schneeweis compared

the S&P’s worst twelve months and best twelve months and found that

managed futures posted gains during both periods. top

6. Is a managed futures account appropriate as a short-term

investment?

Yes. Futures markets, like most markets, tend to be cyclical. In addition,

even an advisor who is highly successful over the course of a year will probably

experience some months in which losses occur. Thus, while you are free to

close an account at any time, it’s probably not a prudent investment

strategy to establish an account that you don’t plan to maintain for

at least 3 years. This allows the account to recover from any temporary losses

in equity and to benefit from longer-term returns.

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7. Does having a managed futures account lessen the risk

of futures trading?

There is no method of futures trading that doesn’t involve risk. The

same leverage and price movements that can produce trading profits can produce

trading losses. Any loss that can occur when an individual directs his own

account also can occur in a professionally managed futures account. However,

one of the things that you should definitely look for in a trading advisor

is a long-term demonstrated ability to manage risk. top

8. How does the performance of managed futures accounts

compare with that of self-directed accounts?

Some individual investors, those who have experience, time, access to information,

and necessary temperament, are highly successful in directing their own futures

trading. The record suggests that only a small percentage of “do-it-yourself”

futures traders possess these requisites for success. Studies indicate that

somewhere between 65 and 90 percent lose money. However, of the 119 funds

and pools in the Managed Account Reports Fund/Pool Qualified Universe Index

that traded from January 1990 through October 1996, 81% were profitable over

the full time period. top

9. Are there other reasons why managed futures accounts

are generally more profitable?

The growing complexity of the markets is one factor but by no means the

only factor. As in most areas of investment, trading experience and trading

skills are ultimately major determinants of trading success. Profitable futures

trading requires the discipline and temperament to respond to market realities

if and when they conflict with market expectations. It requires a keen knowledge

of when and how to liquidate positions. It requires the development and implementation

of carefully considered trading strategies, a trading plan, and a trading

system. Effective account diversification demands an insightful understanding

of how various markets react with and to one another. Otherwise, attempts

to diversify could prove illusory. Even institutional and corporate portfolio

managers who may have experience in futures, such as for hedging applications,

generally choose to use professional advisors to manage their futures trading

investments. For most individual investors, the advantages can be even greater.

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10. Don’t trading advisors differ from one another

in their investment results?

Definitely. In any given year, some will realize impressive profits and

others will incur losses. Still others will be anywhere in between. The success

of your managed account will depend on the success of the advisor you select.

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11. How important is an advisor’s past trading performance?

As advisors and prospectuses are required to state, past performance is

no guarantee of future results. An advisor who has performed well in the past

may perform poorly in the future. And it is possible that someone who has

performed poorly may begin to perform well. This notwithstanding, in any endeavor

some individuals are obviously better at what they do than others and a track

record is at least an indication of past performance. In addition, a track

record can provide other valuable information about an advisor’s experience,

approach to trading, and amount of money under management. You’ll also

want to note whether performance data included in the disclosure document

refers to actual trading results or to “hypothetical” or “simulated”

results. top

12. What should be considered in examining an advisor’s

track record?

Start by considering the length of the record. Sprinters aren’t necessarily

successful distance runners. Sensational performance in a short time span

may reflect little more than extraordinarily good luck. Or, of more concern,

it may reflect someone who takes greater risks than you may be comfortable

with over the long haul. Or it could reflect specialization in markets that,

in a given period, were especially active. Track records can be much more

meaningful when you examine a longer record. This provides more information

about how an advisor has performed over the landscape of continuously changing

market scenarios. An advisor’s performance in less than spectacular years

may be an important indicator of risk management skills. top

13. Which futures markets would I be trading in with a

managed account?

Your trading advisor will determine this and in all likelihood it will be

different markets at different times. Futures contracts are available in the

following sectors: top

• Stock Indexes	• Credit Instruments	• Livestock & Meats	• Currencies
• Energies	• Foods & Fiber	• Grains & Oilseeds	• Metals

14. How do trading advisors differ in their investment

approaches?

One way is in how aggressively or conservatively they participate in the

markets. There also could be differences in which markets they trade. Some

specialize in particular areas, such as financial instruments, metals, or

agricultural products, while others pursue profit opportunities wherever they

appear to exist. If you have a preference for a particular approach, this

should be taken into account. Another difference is whether the advisor employs

a fundamental or technical trading system. Fundamental means that trading

decisions are based principally on supply and demand, and “technical”

means that the markets themselves are continuously analyzed for signals to

future price direction. Even then, different advisors have developed and employ

different systems and may read the markets differently. Moreover, the fundamental-technical

distinction has broken down somewhat as fundamental advisors frequently employ

computerized tools to pinpoint the timing of their trading decisions.

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15. Where will my money be held when I establish a managed

account?

Your money is held in a Customer Segregated Account at our clearing firm,

REFCO, LLC, the world’s largest non-bank Futures Commission Merchant

with more than $4 billion in global equity. While the trading advisor will

direct trading for the account, REFCO performs all other account functions.

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16. Who regulates Commodity Trading Advisors?

In the USA Commodity Trading Advisors are regulated by the Commodity Futures Trading Commission (CFTC) and by the National Futures Association (NFA), the congressionally authorized self-regulatory organization of the futures industry. All trading advisors must be registered with the CFTC and those who manage customer accounts must be members of the NFA. Advisors’ Disclosure Documents are required

to be submitted to the CFTC for review in advance of distribution to prospective

investors. On an ongoing basis, the NFA audits Disclosure Documents (particularly

performance information), promotional materials, and trading activities. Violations

of CFTC or NFA rules can result in a loss of trading privileges and other

penalties.

In Indonesia Commodity trading is regulated by BAPPEBTI or translated into English – Commodity Futures Trading Supervisory Agency and in Australia the Markets are monitored by The Australian Securities Exchange (ASX)top

17. How do I monitor the status of my account?

Kopntak Perkasa Futures will provide the same timely reports you’d receive if you

were directing your own account. These are available a few different ways.

First, a complete listing of all the activity in your account, including your

balance, can be viewed on our website 24 hours a day. Second, you may

call us to obtain an up-to-date status of your account. Finally,

you are sent a P&S (purchase and sale) statement, which shows dates, prices,

and net profits or losses for all trade activity, as well as your account

balance. In addition, you will receive a monthly summary of all transactions

showing their results. top

18. What mistakes do investors sometimes make regarding

managed futures?

There are three basic ones. First, because of the risk, futures trading

in any form may not be appropriate for a given person, even if a managed account

seems more attractive than do-it-yourself trading. Unless you’re comfortable

with the risk level and feel it’s appropriate for you, it would be prudent

not to invest at all.

Second, an investor might select an advisor based solely on whether the advisor is currently hot. A prudent investor will select a CTA based on the money management skills and a trading style that has been employed in the past to achieve consistent returns.

Lastly, investors engagein “account jumping,” or prematurely closing accounts out of panicand fear when experiencing a period of flat returns or drawdowns. By doing

this, the investor loses the opportunity to recover from those temporary losses

in equity and benefit from longer-term returns. top

19.  What are the costs, and how do trading advisors

get paid?

There are basically three types of charges involved when a managed account

is handled by a CTA. A management fee usually between 1-4% of the value of

your account is charged for the overseeing of the trading in your account.

The net trading profits are the combined total of profits and losses from trading.

It should be noted that often a CTA will negotiate a lower or no management

fee in exchange for a higher incentive fee. We particularly like these arrangements

because they can mean that the person making the trading decisions on your

behalf makes no money until you do. Brokerage commissions of $10-25 per side

plus a few dollars in fees are also charged. top

20. Is there a minimum investment to establish an account?

Yes, but different managed account programs have different minimums. At

the least, it will be an amount the advisor considers adequate to achieve

account diversification. Minimum account size also may be affected by whether

the managed account program is designed principally to serve individual investors

or institutional clients. According to industry sources, the best CTAs have

$100,000,000 or more under their management. They may not wish to bother with

accounts of less than a million dollars. The CTAs with the worst track records

will take anything that they can get. I Have a recommended initial investment of $50,000 usd and a minimum investment of $20,000 usd. top

21. Are there any restrictions in withdrawing funds from

my account?

Managed accounts offer a high degree of liquidity. The only restriction

is usually that you do not make withdrawals below the minimum required investment.

You are free to withdraw all funds after liquidation of any open positions.

This can be done at any time you choose unless the account agreement stipulates

otherwise. Similarly, if there are profits in the account, you are free to

withdraw them or leave the money available for reinvestment. You have complete

control over your account and can deposit additional funds, withdraw funds,

or stop trading any time. top

22. What is a Commidity Trading Advisor (CTA)?

CTAs are federally licensed and registered, professional money managers

who manage investors’ assets in the futures markets, just as a stock

mutual fund manager would manage assets in the stock market. CTAs are required

by the federal government to submit a Disclosure Document that outlines who

they are, states the fees and expenses charged to accounts, and reveals their

performance track record. Numerous studies have shown professional Commodity

Trading Advisors experience an impressively higher success rate than the individual

“do-it-yourself” trader. Through CTA-managed accounts, investors

can access emerging profit opportunities in important international markets

unavailable in traditional investment portfolios.

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23. How much money should I invest in managed futures

and how do I open an account?

We recommend that the amount of money you invest be based on your own financial

goals and risk tolerance. This should usually be approximately 5% to 20% of

your overall portfolio. Only risk capital should be used in managed futures

or any speculative investment. Before opening an account you must be supplied

with a copy of the CTA’s Disclosure Document. Read it carefully and go over

any questions you have with your Heritage West broker before you invest. After

your questions have been answered and you feel this type of investing is appropriate

for you, we will help you to complete the CTA management agreement and REFCO

Customer Agreement forms which you will need to return to our offices for

processing.top

24. Why would I need managed futures if I were already

trading futures?

Trading your own account limits your returns to your own ability and system.

By employing CTAs who have a good performance record, you are developing a

diversified portfolio of your own. Thus you can gain even greater benefits

from having futures in your portfolio. top

25. Can I invest a portion of my retirement portfolio

in managed futures?

Absolutely. Managed futures are ideal for the long-term profile of retirement

plans. Investors can choose those products that offer a level of volatility

appropriate to their retirement objectives. Managed futures, therefore, make

extraordinarily beneficial long-term additions to an IRA by diversifying among

asset categories with low to negative correlation. top

26. Are managed futures riskier than stocks?

On a level playing field, managed futures are no riskier than stocks. However,

it is important to understand that the use of leverage available in futures

creates the potential for unlimited risk. The prudent use of this leverage

is one of the most important money management rules in futures trading. Stocks

and futures are both investment vehicles employed by money managers as a means

of making profits. Some managers succeed where others falter. Remember, it’s

not the investment vehicle that makes or loses money, but rather the money

manager’s skills and abilities that will determine results. In his June

2002 academic study, “Benefits of Managed futures,” Thomas Schneeweis,

Professor of Finance, at the University of Massachusetts states:

“Managed futures are not more risky than traditional equity investment.

Investment in a single commodity trading advisor is shown to have risks and

returns, which are similar to investment in a single equity. Moreover, a portfolio

of commodity trading advisors is also shown to have risks and returns which

are similar to traditional equity portfolio investments.” top

27. Are there any tax benefits to investing in managed

futures?

According to the Tax Act of 1981, short-term profits (held for less than

one year) in commodities are treated as 60% long term and 40% short term.

On the other hand, short-term trading profits in stocks are treated as 100%

short term. For investors in higher tax brackets, this tax treatment can mean

saving as much as 30% on taxes on short-term gains on commodities versus stocks!

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